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Testing the law of one price in retail banking: An analysis for Colombia using a pair-wise approach

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  • Iregui, Ana María
  • Otero, Jesús

Abstract

We apply a pair-wise approach to test the law of one price for deposit (lending) rates in Colombia. We find that when banks are of different sizes, deposit rates adjust quickly, suggesting a competitive environment. By contrast, lending rates adjust rapidly when banks are of similar sizes, supporting market segmentation.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 1 ()
Pages: 29-32

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:29-32

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Web page: http://www.elsevier.com/locate/ecolet

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Keywords: Law of one price; Retail interest rates; Colombia;

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  1. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2005. "A test of the law of one price in retail banking," Banco de Espa�a Working Papers 0530, Banco de Espa�a.
  2. Pinelopi K. Goldberg & Frank Verboven, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," NBER Working Papers 8402, National Bureau of Economic Research, Inc.
  3. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
  4. Pesaran, M.H., 2004. "A Pair-wise Approach to Testing for Output and Growth Convergence," Cambridge Working Papers in Economics 0453, Faculty of Economics, University of Cambridge.
  5. Q. Farooq Akram & Dagfinn Rime & Lucio Sarno, 2008. "Does the law of one price hold in international financial markets? Evidence from tick data," Working Paper 2008/19, Norges Bank.
  6. Massimiliano Affinito & Fabio Farabullini, 2009. "Does the Law of One Price Hold in Euro-Area Retail Banking? An Empirical Analysis of Interest Rate Differentials across the Monetary Union," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 5-37, March.
  7. Leybourne, S J, 1995. "Testing for Unit Roots Using Forward and Reverse Dickey-Fuller Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 559-71, November.
  8. Lieven Baele, 2004. "Measuring European Financial Integration," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 509-530, Winter.
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